The purpose of this article is to present an approach based on simulation optimization for improving the performance of cellular manufacturing systems through optimizing operator allocation and job dispatching rules in each cell. In this study, we have considered stochastic parameters, machines’ breakdown and multiple products in order to consider the problem as close as possible to real-world situation. The presented approach is composed of Taguchi design of experiments, discrete event simulation, artificial neural networks, and data envelopment analysis. First, controllable and response variables are determined based on the objective of the study and expert judgment. Then, the design of experiments is used in order to develop experimental scenarios base on controllable variables. Furthermore, simulation is used to evaluate experimental scenarios and their related response variables. Then, in order to expand the experimental results to the whole feasible solution space, artificial neural networks is used. Finally, the optimum scenario is determined using data envelopment analysis. After determining the optimum scenario, it is compared to the present condition of the case and the improvements are determined. In order to evaluate the performance of the presented approach, a lathing factory which uses a cellular manufacturing system is considered as the case study.